AT&T 2nd-quarter profit up 16 percent

Revenue at wireless unit grows 32 percent

NEW YORK (CBS.MW) -- AT&T on Tuesday said second-quarter profit climbed 16 percent, driven by data, wireless and digital video sales. It also said that Wall Street estimates for the third quarter are low.

The nation’s largest long-distance and cable TV carrier said profit excluding special items rose to $1.88 billion, or 57 cents a share, from $1.59 billion, or 49 cents, a year earlier. That beat the 53-cent consensus estimate of analysts surveyed by First Call.

Revenue rose to $16.22 billion from $15.75 billion. Adjusted for various transactions, the company said revenue rose 4.5 percent to $16.87 billion from a year earlier.

Including one-time items, AT&T's (T) net income registered 53 cents a share in the second quarter, up 8 percent from 49 cents a year ago.

On Tuesday, shares of AT&T rose 15/16 to 34 1/4. In a bit of surprise, Chief Financial Officer Charles Noski said Tuesday that third-quarter profit should tally around 40 cents to 43 cents a share, above the 37-cent consensus estimate. Still, analysts were disappointed that the company did not offer guidance on 2001 results.

Pressure on the stock intensified in May after AT&T executives lowered growth forecasts for the rest of 2000. The stock has taking a beating over the past year amid concerns on whether AT&T will succeed in shifting its business away from the declining long-distance market and into the high-growth areas of the future - data, Internet, wireless and broadband.

The company has spent more than $100 billion in that endeavor, acquiring cable TV and other assets.

High-growth areas

Wireless sales advanced 32 percent to $2.48 billion, highlighted by a 34 percent net increase in customers to 11.7 million and a 7.7 percent rise in monthly revenue per user to $71.50 from $66.40. AT&T spun off a portion of that unit, AT&T Wireless Group (AWE), during the quarter.

In the cable business, AT&T said operating cash flow, a key measure of financial health in fast-growing industries, rose 6 percent to $556 million from $525 million a year earlier.

The company said high-speed cable Internet subscribers, signed up through its ExciteAtHome (ATHM) affiliate, increased to 689,000 from 231,700 a year earlier. Cable telephone customers rose to 223,600 from 137,800 at the end of the first quarter.

"During the quarter, we sold new broadband services to more than 400,000 additional households. In fact, we now have more digital video customers -- 2 million -- than all the rest of the industry combined,” Chief Executive C. Michael Armstrong said.

“We have more high-speed data customers -- 689,000 -- than anyone else,” he added. “And no one is adding cable telephony customers at a faster clip -- an additional 86,000 in the second quarter.”

Fading away

Though AT&T’s newer businesses such as wireless and digital cable are growing faster, the increases haven’t been enough to offset the rapid decline in the company’s mainstay consumer long-distance business.

Sales at that unit fell 7.2 percent to $5 billion amid tough competition in the long-distance market, the migration of consumers to cheaper calling plans and the increased use of wireless service in place of traditional phones.

More disturbing, sales at AT&T’s vital business-service segment only climbed 4 percent, down from 6 percent in the first quarter and well below its historical average.

“That was the main factor in why the stock has gotten clocked in the past few months,” said Paul Wright, an analyst at Loomis Sayles, a Boston-based investment management firm that owns AT&T shares.

To counteract the drop-off, AT&T is aiming to slash expenses in 2000 by several billion dollars. To that end, the company cut selling, general and administrative costs by 10 percent, to $3.1 billion from $3.46 billion a year earlier. Overall, SG&A expenses represented 19 percent of revenue, down from 22 percent in the 1999 second quarter.

"We continue to cut costs in our legacy long distance voice businesses so we can invest in our high-growth businesses," Armstrong said.

Said Wright: “Clearly the expense controls are better than expected.”

At some point, however, the company has to boost sales in its newer businesses and can’t rely on cost cuts to shore up results, analysts say. In the latest quarter, revenue and cash flow grew slightly less than expected, Wright noted.

Quarterly results were adjusted for various transactions, including AT&T’s $45 billion purchase of MediaOne Group and the acquisition of IBM’s Global Network.

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